BC-AZ--Rental Car Tax,1st Ld-Writethru, AZ

February 25, 2019

Associated Press

PHOENIX (AP) — The Arizona Supreme Court on Monday upheld a car rental tax surcharge that’s imposed in Maricopa County to pay for building a professional football stadium and other sports and recreational facilities, marking the second time an appeals court has ruled the tax is legal.

Car rental companies had challenged the surcharge on the grounds that it violated a section of the Arizona Constitution that requires revenues relating to the operation of vehicles to be spent on public highways.

A lower-court judge had ruled in favor of the rental companies four years, saying the surcharge violated the constitutional provision and ordering a refund of the tax estimated at about $150 million to the companies.

But the Arizona Court of Appeals reversed the decision last spring. The Arizona Supreme Court on Monday echoed the Court of Appeals’ ruling.

The surcharge partially funds the Arizona Sports and Tourism Authority, an agency that uses the money to help pay off bonds for the stadium in Glendale where the Arizona Cardinals play, along with baseball spring training venues and youth sports facilities. The rest of the authority’s revenue comes from a hotel bed tax and payments for facilities usage.

The surcharge is charged on car rental companies, but the costs are passed along to customers.

Attorney Shawn Aiken, who represented Saban Rent-A-Car Inc. in the case, said in a statement that the challengers will evaluate in the coming weeks whether to ask the U.S. Supreme Court to consider the case.

The state’s highest court said the case turns on the meaning of “relating to” within the constitutional provision.

The car companies argued the constitutional provision shows the surcharge applies to tax revenues “connected to” use of the roadways.

But both Arizona appeals courts ruled the text and history of the constitutional provision shows voters did not intend it to encompass every tax and fee “relating to” vehicles. Both courts ruled the constitutional provision applies to a tax that is a prerequisite to using vehicles on public roads.

The rental companies also argued that the surcharge was discriminatory because it forced out-of-state visitors to pay a special tax that residents of the county were shielded from. The state denied the law was passed with discriminatory intent.

The state Supreme Court ruled the voters did not approve the surcharge with discriminatory intent because they did not intend to treat in-state and out-of-state economic interests differently.

“The decision recognizes that these facilities benefit both Arizona residents and out-of-state visitors,” Scarlett Spring, chairwoman of the sports authority’s board, said in a statement.

Justice Clint Bolick dissented with the court’s majority over its views on the state constitutional provision.

“The court has created a loophole that allows the Legislature and those seeking its favor to divert funding from highways to other purposes, without the pesky inconvenience of constitutional amendment,” Bolick wrote.